Growthink`s Friday Live Deals Conference Call

Growthink’s Friday Live Deals Conference Call
“Biopesticides at an Inflection Point - Again”
July 31, 2009
10:00 am – 10:30 am PDT
Overview
•
Conference call protocol
•
Biopesticides at an Inflection Point - Again
•
The Growthink Portfolio Investment Vehicle
•
Questions/Discussion
Conference Call Protocol
1. 30 Minute Call
2. Questions/comments as we go:
–
Type in utilizing GoToWebinar toolbar
3. After Call:
–
–
To learn more, contact us at:
–
[email protected]
–
800-506-5728
You will receive the slides and a recording of the
presentation
Biopesticides at an Inflection Point - Again
•
•
Market Snapshot – Definitions, Dynamics and Case Studies
Q&A with Industry Principals
–
–
•
Jason Wrone, Open Prairie Ventures
Clifton Baile, Ph.D. and Michael Adang, Ph.D., InsectiGen
Our Recommendations
–
–
For Emerging Companies/Industry Operators
For Investors
Biopesticides – A Shapshot of the Unmet Pest Control Needs
•
•
Harmful insects continue to cause over $30 billion in annual crop losses and $3 billion in
forest damage during a time when the world requires increased food and fiber production
Recent realization that many chemical pesticides can be harmful to humans, animals,
beneficial insects, and the environment
– Governments around the world are restricting synthetic chemical pesticide use and
banning certain products, increasing the cost for food and fiber producers
– Consumers are demanding food uncontaminated with synthetic pesticides
•
Insects are becoming resistant to chemical pesticides, requiring more frequent and greater
use
•
Many, many unmet pest control needs – and opportunities
•
Biopesticides have faced a slow agricultural and consumer adoption rate until recently
Defining the Biopesticide Universe
Not an Easy Task
“Pesticides derived from such natural materials as animals,
plants, bacteria, and certain minerals”*
(we include fungicides, herbicides)
“Organic”
Consumer
Agric./Professional/
Lawn & Ornamental
Dipel/DiTera (IPM with
other chemicals)
JMS Stylet oil, predators,
pathogens and
parasitoids
“Eco-friendly” – “Least Hazardous”
Consumer
Agric./Professional/
Lawn & Ornamental
Intl.
Intl. Bt
Bt
Producers
Producers
Plant Incorporated Protection (“PIP”)/
GM Crop Traits
Agricultural and Professional
Corn seeds with “Bt” gene (1996)
Cotton seeds with “Bt” gene
DowAgro – Herculex® I – in-plant BT corn for Fall Armyworm
Significant demonstrated protection against pests.
Monsanto, DowAgro – SmartStax® Corn – US Launch 2010, S.
America Launch 2012 (herbicide and insecticide traits)
Monsanto – aggressive biotech trait pipeline: soybeans,
sugarcane, etc. in various stages of development (Dev. – phase
4).
“Light Chemical” – Biopesticides + Minimal Chemicals
Agric./Professional/
Consumer
Lawn & Ornamental
Companies reducing
chemicals in products
spinosad; spinetorum
* Source: US EPA definition. This chart is far from universally accepted.
“Bt” is the common soil bacterium, Bacillus thuringiensis. There
are many types of Bt that are toxic to specific pests. Since they
only impact pests, they are considered more “eco-friendly”.
Market Sizes and Key Trends*
The Bottom Line – Enormous Product Opportunities, Enormous Barriers
to Entry for New Firms, Enormous Market Power of Largest Firms
* Sources: Phillips McDougall - AgriService
Transaction Activity
•
Significant market entry challenges for small companies and start-ups…
and amazing opportunities
•
CleanTech Funding in Quarter 2, 2009:
–
–
$1.2 billion in venture capital invested in clean technology*
Requirement to build bridge between biopesticide opportunity and venture funds
•
Expanded Small Business Innovation Research (SBIR) federal grant
program for small businesses (NIH and USDA)
•
Very and uniquely robust M+A environment
–
Hundreds of recent acquisitions, alliances, product agreements, and joint-ventures
The Bottom Line – One of the Most Robust Sectors in Terms of Transactions Today;
Expanded Federal Funding Support
* Source: The CleanTech Group and Deloitte & Touche
Robust M & A in an Overall Down Market
The multinationals are buying companies to expand products, markets and their
involvement in the supply chain (largely crop trait/seed focused)
–
–
–
–
Dow AgroSciences: 10 acquisitions/agreements in last 15 months
DuPont-Pioneer: More than 10 acquisitions or product agreements since December
Syngenta: 9 acquisitions or strategic agreements in last 12 months
Monsanto: 3 acquisitions or agreements in last several months
Traditional ag-chemical companies are entering the biopesticide sector
–
–
–
–
–
BASF: licensing, distribution deal with AgraQuest biofungicide, Serenade
Bayer Crop Science: acquired biopesticide assets of Israel’s Agrogreen
Syngenta: collaborations with small biopesticide firms
Dupont: existing agreement with Marrone BioSciences and insect repellant based on
cat nip
Several other deals in the last month alone!
The Bottom Line – This Trend Will Only Continue, if Not Accelerate
Challenges and Opportunities for Small Companies/Startups
– Significant resources required to:
• Conduct research & development; prove efficacy and safety
profile
• Build out management team and staff with deep and wide
experience
• Register products with regulatory authorities – will it kills rats?
–
“Risk reduced,” “Biochemical,” “Organic”, Will it work in California?, ENDURE in EU
•
Place product in specific channel to compete with larger firms
and also educate customer
• Prove the ability to mass-produce the product
– Time to market does not match up with typical venture firms’
expectations; some venture funds have exited sector
– It’s always difficult to raise early-stage capital and attract the best
talent
– Deals in venture market now are not getting funded
The Bottom Line – In Current Environment, the Most Promising Path May be to Develop a Needed
Product Through the Regulatory Package Phase and “Partner” with a Larger Firm
Sector Case Studies
•
•
•
EcoSMART (Atlanta, GA)
AgraQuest (Davis, CA)
Marrone BioInnovations (Davis, CA)
Lessons to Learn from Sector Leaders
EcoSMART (Atlanta, GA; 1992)
–
–
Natural pesticide products based on essential oils
95 US and international patents; products exempt from EPA registration
• Backed by premier venture firms: Element, RockPort, Cordova, ESP
• Previously focused on four separate business channels
–
–
–
–
–
Retail, agricultural, animal health, commercial
Refocused business on retail market due to massive consumer “pull” demand
Bloggers driving consumer awareness, yet they are still doubtful of
effectiveness
Sold/licensed non-core business units, focused on retail product pipeline (3 Æ
10 Æ 20 SKUs)
Strategy is to fulfill massive retailer demand for consumer products and
educate public about efficacy of eco-friendly pesticides
The Bottom Line – Enormous Consumer Retailer Interest, but the Market Requires
Significant Education and Start-up Companies Will Struggle to Compete
AgraQuest (Davis, CA)
•
•
•
•
•
•
Now focused on the “low chem” opportunity, a combination of biopesticides
with minimal amounts of pesticides
Chemical firm BASF as licensing and distribution partner for Serenade
(biofungicide)
13 products in the pipeline
New management from Chemtura and Syngenta
$5B - $10B “low chem” market by 2017 (Company estimates)
Near-term revenue projection: $200M (Company estimates)
The Bottom Line – Sector “Lines” Will Continue to Blur, as Companies Adapt Business Models to Fuel
Growth and Adjust to Market Changes. Firm has raised $125 million of venture funding.
Marrone Bio Innovations (Davis, CA)
•
•
•
•
•
•
•
Recently changed from “Organic Innovations” to reflect broader market
appeal and address (relatively small) size of organic-only market; not only
pesticides
Broadly screening early stage technologies – discovery stage
Several products available and in pipeline; promoted as program for IPM
Agreement with Dupont to access 20+ products from Dupont R&D
Focused on farmer education to drive sales (“on-farm” 5 acre demos to
prove product)
Pam Marrone is tireless promoter of biopesticide message and is an
industry “thought leader,” generating brand and industry awareness
Once company reaches this level, expectations for new product
introductions accelerate
The Bottom Line – Sector “Lines” Will Continue to Blur, as Companies Adapt Business Models to Fuel
Growth and Adjust to Market Changes. Firm has raised venture funding in the eight figure range.
Views from Industry Experts
•
•
Jason Wrone, The Venture Capitalist View
Michael Adang, Ph.D. and Clifton Baile, Ph.D., The Emerging
Company View
Jason Wrone, Vice President, Open Prairie Ventures
• Open Prairie is a venture capital firm focused on
agricultural technology
– First institutional investor in Vesteran, Inc.
– Vesteron is developing a new generation of bio-friendly
insecticides by employing peptides sourced from spiders
– Over 50 unique, spider-venom peptides with novel sites of
action have been identified and are being exploited. This
patented technology is exclusively licensed to Vesteran, Inc..
Clifton Baile, Ph.D. – Chief Executive Officer/Co-Founder
z
z
z
z
z
z
Founder – Eight biotech start-ups
Director of R&D and Distinguished Fellow – Monsanto Company
Consultant -- 20 companies including some in the Fortune 50
Distinguished Professor and Eminent Scholar– U. of Georgia
Professor – U. of Penn. Sch. of Vet. Med. & Harvard Sch. Pub. Hlth.
Director-- MetaMorphix, AptoTec, Oncose, AgGlobalVision,
Angionics, rPeptide
Michael Adang, Ph.D. – Chief Scientific Officer (CSO)/Co-Founder
z
z
z
One of the most prominent and respected experts in the biopesticide industry
The inventor of one of the first Bt patents
Over 90 journal articles and book chapters published and 14 issued U.S. patents
•
InsectiGen is a US-based independent research, development and licensing firms
focused on biopesticides
•
Founded in 2003 and a benefactor of the University
of Georgia
•
Accidentally discovered its key product technology,
a protein that greatly enhances the most commonly
used biopesticide “Bt,” the common soil bacterium
•
The Company’s patented product “BtBooster” or “BtB” increases
the toxicity of Bt-based biopesticides by many fold, increases the cost-effectiveness
of Bt biopesticides to compete with synthetic chemicals, and offers a potential game
changer to the industry
Path to Success
•
Business and Breakthrough Technology:
– One-of-a-kind, patented technology that enables the most commonly used
biopesticides to finally compete with synthetic chemical pesticides in terms of
effectiveness, cost and pest target range
– Can be sprayed on crops, added as crop trait, used by NGOs in fight against disease
•
Management Team, Board of Directors, Consultants and Early Investors:
•
•
•
Include agribusiness industry leaders and well-connected experts
Includes management, commercialization, R&D, regulatory, manufacturing, legal
expertise
Enormous Market Opportunity:
– The current worldwide pesticide market totals approximately $40 billion
– Crop trait market is $5 billion and growing
•
Relationships with the World’s Premier Agribusiness and Pesticide Companies:
– Established nonexclusive product testing and licensing agreements with several of the
world’s leading agribusinesses, including Pioneer Hi-Bred International/DuPont.
•
Clear Exit Opportunities:
•
Very active M&A and strategic market
Conclusions
•
Products that are in demand by product suppliers and customers – lots of opportunity
–
–
–
–
–
–
–
–
•
•
•
•
•
Bioherbicides (aligned with biopesticide sales channel)
Nematode-focused biopesticides (nematacides)
New generation of rodenticides (rats, mice)
Eco-friendly copper/sulphur replacements
Focus on pests that are becoming more and more resistant to chemicals
Focus on pests that may emerge in GM trait-protected crops
Natural, safe sunscreen for consumer market
Natural weed killer (aligned with biopesticide sales channel)
There are major capital-related barriers to entry in the sector and enormous firms with
billions of dollars of cash
In the current investment climate, consider developing product to the regulatory phase
(including legal efforts), then partnering to commercialize
Use entrepreneurial “scrappiness” to recruit industry network: LinkedIn now at its peak.
Focus on product efficacy, safety and ability to manufacture
Focus on an online, “guerilla” marketing, PR, blog and article writing campaign (the most
cost-effective marketing tool today); crank out online content at a furious pace
Conclusions
•
•
We are in one of the most challenging times to raise early stage capital
Venture firms are seeking:
–
–
–
–
–
•
•
•
•
•
•
Clear path to product commercialization….and a clear exit strategy
Management that is not solely R&D focused; you need proven executives who have introduced
successful products, preferable in agri-tech sector
Products that are proven to work and are unique and defendable
Capital “efficiency” – how much total investment will you need
A rock-solid business plan and management presentation; be sure to have them
Build an advisory board from the sector; leverage members’ connections
Several venture funds have exited the “ag tech” and “crop trait” sectors, but CleanTech
funds are now considering eco-friendly chemical opportunities
Bring management on board with expertise in commercializing products, not just R&D
Partner with a mid-tier firm to develop and prove your product; network in the sector
Don’t spend all your time raising capital; seek an experienced firm that can assist you
Look into the Small Business Innovation Research (SBIR) grant program and state-level
venture funds and seek out someone who has been successful in the past. Next NIH
SBIR deadlines: August 5, December 5. $100k+ + $750k+; USDA SBIR deadline:
September 3 for phase 1 ($80k)
The Growthink Portfolio Vehicle
1)
Managed emerging technology deal portfolio
2)
Hedging strategy for those that seek private
equity return levels, but are:
•
•
3)
Weary of the high risk and illiquidity of the
asset class
Willing to sacrifice the “1,000x” return for more
predictable return and downside protection via
diversification
Designed for accredited individual investors
and funds seeking managed exposure to
earlier-stage emerging technology deals
To Learn More
•
•
Contact us for additional information:
–
Open Prairie Ventures
–
InsectiGen’s Technology
–
Growthink Advisory Services
Contact us at:
–
[email protected]
–
800-506-5728
Please Note
Not a General Offering or Solicitation
This presentation does not constitute a general offering or solicitation to
purchase or acquire securities.
This presentation is intended for professional and accredited investors in
the Growthink network who possess a pre-existing relationship with the
firm or its professionals.
All potential investors who wish to review detailed information regarding
any of the following opportunities must be “accredited” as defined by
Regulation D of the Securities Act of 1933.
Additional Materials
–
–
–
–
–
Market Dynamics
Recent Industry Transactions
Case Study - Valent
Conclusion – For Venture Firms
Resources – Creating an Online Marketing/SEO Campaign
•
Free Growthink Web Class – “Do You Make These Marketing
Mistakes”. Search the program title on the Growthink site.
Biopesticides in 2009:
Rapidly Evolving – and Complex – Sector Dynamics
“Pure play” biopesticide firms
expanding business models
to fuel growth; multi-prong
strategies; partnerships with
agri-firms
Certain
agricultural/residential
pesticides proving to
be hazardous;
continued loss caused
by pests
Increasing public and
government scrutiny of
pesticides, registration
and development costs;
pest resistance/
tolerance; few new
products; biopesticide
regs
Venture investment
community concerns about
product market penetration
and/or time-to-market (re:
crop trait firms); VCs have left
sector
New biopesticide
product
introductions by
well-resourced
firms; projections of
rapid market growth
Consumer interest in
organic food, safe
gardening and health
concerns related to
chemical – fast growth,
yet low current product
penetration
Slow historical
adoption of
biopesticides by
farmers –
concerns about
effectiveness and
cost; lower relative
resources of firms;
examples of
successes
Significant in-roads made by
GM seeds with pesticide traits;
massive resources of global
seed companies; robust M&A
and “collaboration” activity;
many companies are same
ones that produce synthetic
pesticides; Bayer, Syngenta,
BASF move into sector with
transactions
Recent Industry Transactions
Company
Transactions
Dow AgroSciences
10 Acquisitions
Dupont –Pioneer
10 Acquisitions/Deals
Monsanto
3 Acquisitions
BASF
Interest
Time
•Duo Maize
•Rohm and Haas
•Triumph Seed of Ralls
•Bio-Plant Research Ltd.
24 months
•Nandi Seeds
•Ag Data Management
•Agreement: Syngenta-Cruiser
•Agreements: Bayer
15 months
•Aly Participacoes Ltda.
•De Ruiter Seeds Group B.V.
•WestBred, LLC
15 months
5 Deals
•Agreement: Serenade
•Partnership: ASA
•Partnership: AgraQuest
•Licensing
•Business Alliances
•Expansion
12 months
AgraQuest
4 Deals
•Acquisition-Codena
•Capital raise: $20 MM
•Alliance: Sylvan Inc.
•Partnership: BioWorks Inc.
24 months
Syngenta
9 Acquisitions
•Circle One Global, Inc.
•SPS
•Chrysanthemum and Aster
•Goldsmith Seeds
24 months
Bayer Crop Science
4 Deals
•Licensing: Monsanto
•Licensing: Dupont
•Acquisition Products: Agregreen
12 months
Case Study - Valent
•
Biopesticides a New Tool in the Worldwide Fight Against Malaria (and Other Diseases)?
– Despite billions of dollars of aid, malaria continues to kill more than one million
people and cause illness to as many as 500 million people (mostly children under
the age of five) each year.
– Why?
•
Faulty implementation strategies,
•
Government mismanagement, and
•
Historically small budgets have contributed to the ongoing failure
– New support from the Gates Foundation and various NGOs have focused on new
options
– The WHO, USAID and others have recently touted Valent’s larvicide, VectoBac®,
as a promising new solution for malaria, dengue fever. Part of an integrated
solution, including bed-nets and other solutions.
– Example: “Anti-larval measures are a promising complement to ITN distribution in
the economically important highland areas and similar transmission settings in
Africa.”
The Bottom Line – Many NGOs and Health Organizations Looking at
Biopesticides as a New Solution
* Bulletin of the World Health Organization (WHO), July 7, 2009
Growthink Strategy Recommendations
•
For venture funds seeking promising investment opportunities
– First, develop and attract ag-tech, biopesticide, etc. sector expertise for your fund
• A lot of investment capital will be lost by cleantech funds jumping into the eco-friendly
chemicals sector due to its massive – and growing - size without understanding this
extremely complex and technical industry
– The exit expectations of most venture funds do not align with the complete time-tomarket period for products in either the biopesticide or agriculture/crop trait sector
– However, the biopesticide/crop trait sectors are two of the robust worldwide M&A
markets; we expect this trend to accelerate. This will be your primary exit vehicle.
– Growthink’s key metrics for investment success:
• Management team that includes executives who have aggressively brought ag,
ag-tech, crop trait, etc. products to market
• Product or products that are novel and unique, but also fill an need unmet by the
market and will attract strategic interest; know what large firms are looking for
• Well-connected team: management, board, advisory board, consultants, etc.
• Comfort level that the product will be deemed